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  • Writer's pictureInvestment Synergy Team

Will there be anything from Rishi Sunak for The Housing Market?

On March 23, Rishi Sunak will present his spring statement to the House of Commons, hard on the heels of what markets expect will be the next increase in interest rates from the Bank of England.

March is thus becoming a month heavy in economic policy.

What might this mean for the housing market.

Starting with the Bank, some City analysts are describing rise in official interest rates on March 17 as a “nailed-on certainty” - and it was…

The question is what the Bank does next after what is expected to be the first sequence of raising rates in three successive monetary policy committee meetings for almost a quarter of a century.

When the news of the Russian invasion broke, one of the earliest market responses was a significant fall in yield on gilts, UK government bonds.

That fall has now been largely reversed but it was a snap judgement on the fact that, though the war in Ukraine will inevitably add to inflation, through higher energy and food prices, it would also create new uncertainty and reduce economic growth.

This has opened up a big debate in markets.

Some Bank-watchers think, having been sparked into action by the surge in inflation to well above its 2% target, and amid fears that the Russian invasion will keep inflation high for longer, the Bank will not be easily stopped from raising rates until it is certain that inflation has peaked.

That could mean several more hikes this year, taking the rate close to 2% by the end of the year, a level that has not been seen since the depths of the financial crisis well over a decade ago.

Others think that for the Bank it will be, in market parlance “one or two and done”.

There might, in other words, be another hike this year, probably in May, but then it will pause to assess the effects.

Lending weight to this argument is the fact that, as well as raising rates, the Bank has also begun reversing its quantitative easing (QE).

Its new policy of not reinvesting the proceeds of the maturing gilts in its portfolio and running down its £10 billion stock of corporate bonds means that QE has turned into QT, quantitative tightening.

The stock of gilts has been reduced by £28 billion this month alone.

That is small compared with a QE total of £895 billion, but it is a start.

So what is it? A string of rate rises or just one or two increases.

We will know more on Thursday, but the Bank will in all probability, want to dampen expectations of too rapid a pace of tightening.

That will offer some reassurance that, as well as the energy price shock, the housing market is not about to experience too big a mortgage rate shock.

A few days after the Bank’s decision, on March 23, will come Rishi Sunak’s spring statement.

This is not meant to be a budget, or even a mini budget, but every time the chancellor stands up on an occasion like this it is wise to expect some meaningful content, particularly now.

The Treasury thought that the £9 billion package announced last month would be enough.

It included a £150 council tax reduction for bands A to D in April and a scheme to cut £200 from energy bills in October, paid back over the following five years.

That package, however, was announced before Russia’s invasion of Ukraine.

The £9 billion package compensated householders for nearly half the £20 billion hit from higher energy bills.

Now the hit is about £40 billion, and the pressure is on for the chancellor to do more.

The housing market has reason to sit up and take notice whenever Sunak makes a statement.

His stamp duty reduction in 2020, announced in July that year, and extended in March 2021, was an important ingredient in the cocktail which allowed the market to sail through the pandemic.

Nothing like that is in prospect for the spring statement, and nor is it needed.

Though the exacerbated cost-of-living crisis is a source of new uncertainty, the market adapted smoothly to the end of the stamp duty reduction last September and remains strong.

The chancellor is not going to offer direct help for the housing market at a time of double-figure house-price inflation and robust activity.

More important for the sector is whether he offers the kind of help that will arrest the drop in consumer confidence that has been a feature of recent weeks.

The Treasury has so far been tight-lipped on whether there will be further measures to ease pressure on households and seems determined to stick to the planned increase in National Insurance and other tax hikes.

It seems inconceivable, however, that Sunak will not take further action.

Having guided the economy through the pandemic – at considerable cost to the public purse – he will not want to let it slide unaided now into decline.

INVESTMENT SYNERGY - The best hope for us all, of course, is an acceptable resolution of the appalling situation in Ukraine, and an easing back of some of the huge increases in the prices of energy and food commodities.

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